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Debts, Deficits and Growth in Interdependent Economies


  • Alogoskoufis, G.S.
  • Van Der Ploeg, F.


We investigate the effects of budgetary policies on growth rates, external debt, real interest rates and the stock market valuation of capital in a two-country, overlapping-generations model of endogenous growth. A worldwide rise in the public debt/GDP ratio, or the share of government consumption, reduces savings and growth. They also increase real interest rates and depress the stock market because of the adjustment costs of investment. A relative rise in one country's debt/GDP ratio or its GDP share of government consumption results in a reduction in its ratio of external assets to GDP. Growth rates are equalized unless there are differences in investment adjustment costs or depreciation rates. Per capita output levels do not necessarily converge.
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(This abstract was borrowed from another version of this item.)

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  • Alogoskoufis, G.S. & Van Der Ploeg, F., 1991. "Debts, Deficits and Growth in Interdependent Economies," Papers 9104, Tilburg - Center for Economic Research.
  • Handle: RePEc:fth:tilbur:9104

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    References listed on IDEAS

    1. Robert J. Barro & Xavier Sala-I-Martin, 1992. "Public Finance in Models of Economic Growth," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 645-661.
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    Cited by:

    1. Klaus Waelde, 1994. "Trade pattern reversal: The role of technological change, factor accumulation and government intervention," International Trade 9403003, EconWPA, revised 06 Apr 1994.
    2. Casper Ewijk, 1994. "Growth promoting policies, distribution, and the balance of payments," Journal of Economics, Springer, vol. 60(1), pages 55-80, February.

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    debt ; deficit ; economic growth;


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